Capital Structure of Starbucks
Different companies have different ways of raising funds for their operation. The capital structure refers to how companies raise funds for their operations and finance their assets. This essay investigates the capital structure of Starbucks. Starbucks is an international company with chains all over the world that sells coffee, sandwiches, salads and many other things. It was founded in Seattle on March 30th 1971 by Jerry Baldwin, Gordon Bowker and Zev Siegl. It has an asset base of approximately 6.38 billion dollars with equity of approximately 3.68 billion dollars. Its asset financing is based on stock and borrowing. Unlike other chain stores that are franchised, all its outlets are company owned.
Just like many companies, most of Starbucks’ operations are financed via their stocks. It is because such stock serves as relative security. They rarely fluctuate over time and cannot be used to pay off their creditors. These stocks are normally divided into multiple shares distributed to several owners each with different percentages of the total stock. The Starbucks shareholders have given preference to the common stock which gives them voting rights. During the last sale, their shares went approximately up to forty eight dollars each and with a total share volume of approximately four million and ninety thousand. Starbucks’ outstanding shares are about seven hundred forty five million four hundred thousand with a market value of approximately thirty seven billion dollars. Based on their financial release in the year 2010, their income from equity investees was about thirty seven million dollars.
Companies also finance their operations from debts owed to secondary parties. In the case of Starbucks, their incomes from debt are relatively small and are not preferred due to the fact that they enable the creditors to hold the company at ransom and through the obligation owed may affect the company’s operations. Most of the creditors are the suppliers and banks where they borrow short term loans to finance their emergency plans. Approximately sixty percent of their assets are financed by funds from equity with almost all the remaining percentage coming from debts and hybrid securities which are also a source of their income.
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In the past years the structure has remained relatively the same but due to strikes and the losses incurred during the financial crisis in 2008, the company had to remove its accent off one of the methods: to rely more heavily on debt. This is an appropriate structure for this type of company, as relying heavily on debt could cripple company’s operations and reduce its profitability.
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